It would hit both sides and maybe the UK would be hit worse, but nobody in Germany would see this as an excuse for German job losses

Maria Koleva, Brussels

8 September, 2017

Maria Koleva

Close-up: Pieter Cleppe is the Head of the Brussels office of Open Europe, an independent policy think-tank providing an intellectual framework for thinking about Britain’s new relationship with the European Union and its role in the world. He is a frequent contributor to the debates on the EU reform, the refugee crisis and the euro crisis. A trained lawyer, Pieter Cleppe previously practiced law in Belgium and has worked as a cabinet adviser to the Belgian State Secretary for Administrative Reform. Prior to this, he served as an analyst at the Belgium’s Itinera Institute, which he helped to establish. He received his legal training at the Catholic University of Leuven, and also studied law and economics at the universities of Hamburg, Bologna and Vienna.

- Mr Cleppe, after the third round of negotiations, are in your view the Brexit talks in a deadlock?

- I don’t think they are, because we’ve seen some progress already earlier this summer with regards to the citizens issue and I think also over the summer we have seen some progress, and that is because the UK government has clarified its position on a number of issues. Many people would say this does not mean that there is progress, because it’s only the UK government that is proposing something that the EU wouldn’t necessarily agree with. But I think the British government, when it proposes something, it is almost certainly to be agreed by the EU and we can consider this material progress. Let me clarify - the UK government proposes that after the UK exits the EU there should be common Customs Union between the UK and the EU. Precisely this proposal was also made by the Irish government and given the fact that if Britain would be in a Customs Union with the EU, similarly to Turkey, that this would constitute pretty weak trade sovereignty on the part of the British. It’s likely that the EU would accept this because the UK would basically have to follow the EU trade policy. It’s hard to see why they would not support it, especially when this would also temporary “solve Ireland”. Now this is very important and still many people don’t speak about this proposal of the UK government without understanding that it is virtually certain to be agreed by the EU. In Brussels last week, we’ve seen the negotiations and indeed there were still some disagreements but nothing you couldn’t argue is entirely impossible to overcome.

- Do you expect the Brexit bill to be the biggest “apple of discord” on the negotiators’ table?

- What is interesting is that David Davis, the Brexit Secretary, said the UK has no legal obligation to pay in terms of a “divorce settlement”, yet another issue to the EU, but it does have a moral obligation. This clearly is concession from the UK that they probably will have to pay something. Now the UK is very keen to move to trade negotiations and in some points they take the EU has to follow them on that, so the fact that Britain is basically conceding it has an obligation to pay to the EU, be it a moral one rather than a legal one, I think we can definitely say that is progress. It was not surprising, the fact the EU writes that it should only be sufficient progress and not a final bill, indicates that the EU27 understand that of course Britain could not agree to a figure without getting something in return. That’s not how politics works. Poland and all the other net receivers from the EU budget, all these countries have an interest in trying to link the trade and the money together, because then they can get more trade access to the UK. Even the net payers have an interest in that because, if Britain pays more into the EU budget, then the Brexit budget hole will be smaller, so they will have to contribute less. I think it’s written in the stars that the money issue is linked, in a good old fashion EU horse-trading style, with all other issues.

- In what aspects is the progress made on the citizens’ rights front, as you mentioned?

- Over the summer, the UK has presented a proposal that could be very well acceptable to the EU side, in terms of appointment of an arbiter to solve out any judicial disputes and expat-style court solution could be the way to resolve issues. Britain has basically said that they are not willing to accept any European Court of Justice (ECJ) rule but they are willing to accept some supranational court rule, with also an UK judge in that court, and given that its ruling will not be directly bound but will have to be implemented by a British sovereign act into the national legal order. It’s similar to what the case is with the European Court of Human Rights in Strasbourg. This is maybe rather technical but it is what the UK has done to present a model of a solution, an arbitration mechanism that is very likely to be accepted by the EU side. I say that first of all, because the German foreign minister Sigmar Gabriel has said in May already, before the negotiations have started, that if Britain wouldn’t accept ECJ then a somehow indirectly-binding EFTA court solution could be a way-out. Secondly, the President of the ECJ Mr Koen Lenaerts over the summer said that if Britain would not accept his court, the EFTA court, or similar one, could be a solution. It’s very fair to say that what Britain has proposed is likely to be accepted by the EU side and this arbitration mechanism is then likely not only to be accepted to sort out any disputes about citizens, which are related to the exit of the UK, but also it could be used for any transition disputes. Whether Britain will also accept this court after the transition when entering its long-term bilateral status then, that’s less certain, but we do not need to resolve that before March 2019, that’s precisely why there will be a transition period figured out. The Swiss did not accept a supranational court even if it was a binding one by the EFTA court, for them it was going too far. Maybe it will also go too far for the UK, maybe it’s also even better not to have a court but to basically have politicians figuring it out, whether there is a dispute, because it is all very political. The fact that the UK seems very ready to accept this EFTA-court-style arrangement during the transition, and for certain exit issues like the one concerning the citizens, it constitutes a lot of progress because this precisely was a very sensitive point, but of course we still need to deal with a number of issues.

- Isn’t it really regrettable for Britain to go out and not be anymore integral part of such a huge marketplace?

- This is a question regarding whether Brexit was a good or a bad thing. In Open Europe we are neutral to the debate and basically it was also founded on the economic analysis on Brexit. Our conclusion was that Brexit could be a good thing for Britain but it could also be a bad thing, depending on three factors. First, the question to what extent Britain, if it would leave, would manage to negotiate back access to the EU single market. Secondly, to what extent the UK could implement domestic liberalisation and competitiveness reforms to compensate for some of the disruption. And thirdly, to the extent the UK could secure access and trade deals to the rest of the world. These three factors determine whether Brexit will be a gain or a loss for the UK. There are scenarios thinkable in which the UK would dramatically gain and we can also think of scenarios where the UK would dramatically lose from Brexit, but we think that these scenarios are very unlikely. In all likelihood it will be a small advantage or a small disadvantage. This was our assessment already before the referendum and I think, in all fairness, if you look at the UK economy, everyone could admit that so far we’ve been right that no major economic effect has been felt yet as a result of Brexit.

- Mr Michel Barnier, chief negotiator for the EU warned that Brexit would weaken Britain’s security and defence. What are the risks in this field?

- In all fairness, if the relationship between the UK and the EU would deteriorate as a result of Brexit and there would be less cooperation in terms of fighting against terrorism then, of course, he is absolutely right. Now that is a big “if”. It’s not a given that the relationship should deteriorate, it is perfectly possible to work out Brexit, to make sure that there is a liberal Brexit in which the UK would turn from a bad tenant into a friendly neighbour and, of course, in such a context there is no place for anti-terrorism cooperation to deteriorate.

- What will be the consequences for the UK if there is no divorce deal in March 2019, and how can this affect the EU as well?

- I think the consequences for both sides would be pretty damaging and it’s very important that we have a trade deal because of the simple fact that a lot of trade would become partially illegal and we will see tariffs on goods, exports into the UK, and we would see that for UK financial services it would be much harder to offer them in mainland Europe. But it would be damaging for both sides. You can do each kind of calculation showing which side would be hit worse. Maybe it is true that in the UK would be ever worse than in the EU but I don’t think it matters. I will give an example that 50,000 jobs would be lost in the German car industry and likely the German Chancellor Merkel would come under criticism in Germany and should say “it’s true that we’ve lost 50,000 jobs in our car manufacturing business but look at the UK, they’ve lost three times more in the City of London.” So I don’t think anyone in Germany would see that as any excuse. The truth is that it doesn’t matter how big the damage is in the UK, if it’s bigger or smaller than the damage in Germany, or in mainland Europe, what matters is whether there will be damage from Brexit or not, and I guarantee you if there would be damage in mainland Europe as a result of mishandling of Brexit by the European Commission and the EU27, then the EU will not become more popular in the EU. I can assure that the European Commission will be blamed rightly of this going off track. All these strategic games that some people are trying to play in the European Commission should stop and people should get to work.

- Is it realistic to expect that the Union can step back from its position that there will not be trade talks with the UK until sufficient progress on the principle issues is reached?

- The European Commission initially wanted a final agreement on the money, before even talking about trade, and as a result of the pressure of the EU27 the European Commission had to back down. So in the guidelines it no longer requires final agreement on the money but only material progress, as well as on Ireland and on citizens’ issues. If the EU really thinks that Ireland and Northern Ireland, and the border there, are a top priority, it would be very weird if they are not willing to talk about trade. As to sorting out Northern Ireland, they need to discuss the technical details of Britain leaving the EU Customs Union after the transition period. It is precisely what they need to negotiate if they want to avoid a “hard border”. The fact alone, that they’ve written in the guidelines that there should be material and sufficient progress, indicates that they are very much willing to be flexible on this.